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AINS 21 - SEGMENT A EXAM 2024 WITH
100% ACCURATE SOLUTIONS
From a risk management viewpoint, insurance is used to A. Prevent the cost of losses B. Reduce the cost of losses C. Transfer the cost of losses D. Isolate the cost of losses. - ANSWER ☑☑C. Transfer the cost of losses. A loss exposure is: A. Any condition that presents the possibility of a loss. B. Any condition that precludes the chance of loss. C. The same thing as a peril. D. The same thing as a hazard. - ANSWER ☑☑A. Any condition that present the possibility of a loss. Some loss exposures are not easy to retain, avoid, or control. What risk management technique is frequently used to treat such exposures? A. Reinsurance B. Prevention C. Transfer D. Reunderwriting - ANSWER ☑☑C. Transfer Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through A. Retention B. Noninsurance transfer techniques C. Avoidance D. Loss prevention - ANSWER ☑☑B. Noninsurance transfer techniques
Another name for liability insurance is A. First-party insurance B. Second-party insurance C. Third-party insurance D. Multiple-party insurance - ANSWER ☑☑C. Third party insurance Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. She recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loans. For someone in Sally's circumstances the most practical risk management technique for dealing with her auto-related loss exposures is A. Risk transfer B. Retention C. Loss control D. Avoidance - ANSWER ☑☑A. Risk transfer Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is A. The record keeping associated with the retained losses. B. Availability of insurer loss settlement services. C. The potential for financial ruin. D. The unavailability of insurer loss control services. - ANSWER ☑☑C. The potential for financial ruin. Life insurance that provides coverage for a specified period with no cash value is called A. Universal life B. Long-term care insurance C. Term life insurance D. Whole life - ANSWER ☑☑C. Term life insurance A small business owner concerned about something happening and not being able to work or earn a living for an extended period of time due to an accident should purchase
D. Premium rebating. - ANSWER ☑☑B. Indemnification. Which one of the following statements is correct with respect to characteristics of insurable loss exposures? A. Private insurance is suitable for risks where the probability and timing of loss is known. B. If losses are not fortuitous, premiums could increase for all policyholders. C. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. D. If the insured has control over whether or when a loss will occur, the risk is attractive to insure. - ANSWER ☑☑B. If losses are not fortuitous, premiums could increase for all policyholders. Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that A. The insurer is able to predict the amount and timing of each future loss. B. The losses associated with it typically involve small amounts. C. The insurer is able to charge a premium that the insured can afford to pay. D. The insurer can charge a high premium for the coverage. - ANSWER ☑☑C. The insurer is able to charge a premium that the insured can afford to pay. Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. Definite and measurable. B. Independent and not catastrophic. C. Fortuitous. D. A large number of similar exposure units. - ANSWER ☑☑B. Independent and not catastrophic. Which one of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures? A. An ideally insurable loss exposure should be associated with speculative risk. B. Indemnification is the process of restoring an insured to a pre-loss financial condition. C. One purpose of insurance is to enable the insured to profit from a loss. D. If a loss exposure includes the possibility of gain, it is a more desirable risk to insure. - ANSWER ☑☑B. Indemnification is the process of restoring an insured to a pre-loss financial condition.
For insurers to utilize pooling most effectively and prevent catastrophic losses, the insured exposure units need to be A. Correlated. B. Different. C. Independent. D. Adjacent. - ANSWER ☑☑C. Independent. Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet? Choose one answer. A. Definite and measurable B. Independent and not catastrophic C. Large number of similar exposure units D. Pure risk - ANSWER ☑☑C. Large number of similar exposure units Ideally insurable loss exposures are subject to losses that A. Result from unidentifiable causes. B. Are definite in time, cause, and location. C. Occur gradually over long periods of time. D. Are immeasurable in terms of frequency or severity. - ANSWER ☑☑B. Are definite in time, cause, and location. Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be A. Definite. B. Pure risks. C. Fortuitous.
Which one of the following statements is correct regarding the benefits provided by insurance? A. Insurance helps reduce the financial burden to society by compensating accident victims. B. The primary role of insurance is to meet mandatory insurance requirements. C. Insurance reduces the financial consequences of loss exposures but not the related uncertainty. D. The reduction in losses paid by insurers due to risk control measures benefits individual insureds but not society as a whole. - ANSWER ☑☑A. Insurance helps reduce the financial burden to society by compensating accident victims. Which one of the following statements is correct regarding the benefits that insurance provides? A. Investment income helps keep insurance premiums at a reasonable level. B. The premiums collected by insurers must be held in cash to be available to pay claims. C. Insurance provides a source of investment funds for insurers but not for insureds. D. Insurers are prohibited from investing in such things as research or technological advancements. - ANSWER ☑☑A. Investment income helps keep insurance premiums at a reasonable level. Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it A. Increases competition in the industry. B. Reduces agents' commissions. C. Reduces the term of many policies. D. Increases the total cost of insurance. - ANSWER ☑☑D. Increases the total cost of insurance. Which one of the following is an opportunity cost of insurance? A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. The cost of claims payments that would not have been necessary if insureds' carelessness had not caused losses C. An insurer's loss on invested premiums D. The payment of commissions to agents - ANSWER ☑☑A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary
One of the costs of insurance is said to be opportunity costs. This means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to A. The agency system. B. Society. C. The insurance industry. D. Government. - ANSWER ☑☑B. Society. Which one of the following is an operating cost of insurers? A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. Increased property losses because people have insurance C. Producers' commissions D. Increased liability loss payments because people have insurance - ANSWER ☑☑C. Producers' commissions Though premiums are an obvious cost of insurance, many insureds believe they are too high because A. Premiums are not a regular cost of living. B. Insurers only use eighty cents from every premium dollar to pay losses. C. Benefits are intangible until a loss occurs. D. Insureds do not deliberately cause losses. - ANSWER ☑☑C. Benefits are intangible until a loss occurs. A type of insurer that has a board of directors elected by policyholders and that may pay dividends to policyholders as a return of a portion of premiums paid is a A. Stock insurer. B. Mutual insurer. C. Reciprocal insurance exchange. D. Captive insurer. - ANSWER ☑☑A. Mutual insurer. A mutual insurance company is owned by A. Policyholders.
D. Is an unincorporated association providing insurance coverage to its subscribers. - ANSWER ☑☑D. Is an unincorporated association providing insurance coverage to its subscribers. Insurance Company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential costs of the insured's loss exposure exceed Insurance Company's capacity. Insurance Company could consider which type of contractual transferring agreement to meet its needs? A. Reciprocal insurance B. Mutual insurance C. Reinsurance D. Interinsurance - ANSWER ☑☑C. Reinsurance Small U.S. unincorporated insurance associations, domiciled mainly in Texas, are known as A. American captives. B. American mutuals. C. American Lloyds. D. American reciprocals. - ANSWER ☑☑C. American Lloyds. An insurer that was formed for the purpose of earning a profit for its stockholders is a A. Captive insurer. B. Mutual insurer. C. Stock insurer. D. Reciprocal insurance exchange. - ANSWER ☑☑C. Stock insurer. A company interested in improving cash flow should consider meeting its insurance needs through which one of the following types of insurance organizations? A. Captive insurers B. Stock insurers C. Reciprocal insurance exchanges D. Mutual insurers - ANSWER ☑☑A. Captive insurers
Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization A. Will not be required to expend economic resources to insure those loss exposures. B. Is likely to see the same economic benefit as compared to insurance. C. Is likely to use insurance to treat those loss exposures. D. Will often be able to eliminate losses from those loss exposures. - ANSWER ☑☑C. Is likely to use insurance to treat those loss exposures. The size of an employer's loss exposure for workers compensation insurance is based on A. The amount of its payroll. B. The number of its employees. C. The extent of its operations. D. The final premium audit. - ANSWER ☑☑A. The amount of its payroll. The premium charged for an insurance policy should be A. Equivalent to the exposure. B. Commensurate with the exposure. C. Concurrent with the exposure. D. Equal to the exposure. - ANSWER ☑☑B. Commensurate with the exposure. Which one of the following best describes what is determined by the insurer's staff review of applications from prospective insureds? A. Whether the account should be written as a personal insurance policy or a commercial insurance policy B. Whether claims will be paid or denied C. Whether the characteristics of the customer match the insurer's eligibility and selection guidelines D. Whether any loss control recommendations will be made - ANSWER ☑☑C. Whether the characteristics of the customer match the insurer's eligibility and selection guidelines Prompt and professional loss adjustment services are a responsibility of what part of an insurer's organization?
D. Controlling the loss. - ANSWER ☑☑C. Contacting the insured. Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization A. Will often be able to eliminate losses from those loss exposures. B. Will not be required to expend economic resources to insure those loss exposures. C. Is likely to use insurance to treat those loss exposures. D. Is likely to see the same economic benefit as compared to insurance. - ANSWER ☑☑C. Is likely to use insurance to treat those loss exposures. Which one of the following statements concerning government insurance programs is true? A. The federal government provides workers compensation insurance to employers who cannot get it from private insurers. B. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices. C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. D. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. - ANSWER ☑☑C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. Which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pays the claims and then reimburses the insurer for the portion of losses that exceeds premiums and investment income? A. Beach and Windstorm Plan B. National Flood Insurance Program (NFIP) C. Terrorism Risk Insurance Program (TRIP) D. Residual Auto Plan - ANSWER ☑☑B. National Flood Insurance Program (NFIP) Which one of the following statements is correct regarding government insurance programs? A. Government insurers cannot function as primary insurers for duties such as collecting premiums, providing coverage, or paying claims.
B. Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention. C. Government partnerships with private insurers usually develop in especially desirable lines of business. D. Government insurance programs cannot operate in direct competition with private insurers. - ANSWER ☑☑B. Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention. Which one of the following correctly describes a reason for government involvement in property- casualty insurance? A. Selling insurance provides the government with a non-tax source of revenues and profits. B. Government programs can meet legitimate public demands unmet by private insurers. C. Competition from government plans keeps private insurer's premiums competitive. D. Preventing high-risk individuals or activities from being insured is in the public interest. - ANSWER ☑☑B. Government programs can meet legitimate public demands unmet by private insurers. The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program? A. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. B. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. C. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. D. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. - ANSWER ☑☑C. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. Which one of the following statements is correct regarding government involvement in insurance? A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. B. Most organizations obtain workers compensation insurance through federal or state insurance programs. C. Government insurance plans typically incur significant costs in marketing and sales commissions.
Which one of the following statements is true? A. Insurance policies are private contracts, the language of which is largely unregulated. B. Insurance regulators review policies to determine if they benefit consumers. C. Regulators set coverage standards, but allow insurers to determine policy language. D. Insurers must be free to create policies that are in their best interest. - ANSWER ☑☑B. Insurance regulators review policies to determine if they benefit consumers. Solvency - ANSWER ☑☑The ability of an insurer to meet its obligations as they become due The capital of a stock insurance company comes primarily from A. Sale of company stock. B. Leveraging the difference from when a premium is paid in and when a claim is paid out. C. Return on invested premium reserves. D. Sale of insurance policies. - ANSWER ☑☑A. Sale of company stock. An Ohio insurer that is licensed to sell insurance in Michigan is known as what in Michigan? A. A foreign insurer B. A captive insurer C. A domestic insurer D. An alien insurer - ANSWER ☑☑A. A foreign insurer A stock insurer is distinguished from a mutual insurer by the fact that A. It is governed by a board of directors. B. Owners are not necessarily insureds. C. Owners have voting rights. D. It seeks to generate a profit. - ANSWER ☑☑B. Owners are not necessarily insureds. Which one of the following statements is true?
A. Mutual insurers are exclusively regional or local insurers. B. Mutual insurers are usually large national insurers. C. Mutual insurance companies include some large national insurers. D. Mutual insurers include few regional insurers. - ANSWER ☑☑C. Mutual insurance companies include some large national insurers. Generally, how often must a foreign insurer's license be renewed? - ANSWER ☑☑Annually A flex rating law is A. An insurance rating law in which the rates and supporting rules must be filed with and approved by the state insurance department before they can be used. B. A state law under which insurance rates are set by a state agency or rating bureau and all licensed insurers are required to use those rates. C. An insurance rating law that allows insurers to develop and use rates without having to file with or get approval from the state insurance department. D. An insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file. - ANSWER ☑☑D. An insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file. Some insurance rating laws allow rates to be put into use immediately but require insurers to files the rates with the state within a specific period of time. These types of laws are known as A. Prior-approval laws. B. File-and-use laws. C. Use-and-file laws. D. Flex rating laws. - ANSWER ☑☑C. Use-and-file laws. The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to A. Detect and address any policy provisions that are unfair. B. Limit policies' length and complexity. C. Ensure that the insurers rights are protected.
Unfair trade practice acts involve which one of the following insurance company operations? A. Financial reporting B. Underwriting C. Rate filings D. Coverage form design - ANSWER ☑☑B. Underwriting Which one of the following is true regarding the administration of the Insurance Regulatory Information System (IRIS)? A. Under a special provision in state licensing laws, state regulators are empowered to completely take over an insurer at any time. B. If the insurer has financial ratios that are inside predetermined norms, IRIS identifies the company for regulatory attention. C. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. D. If an insurer cannot be rehabilitated, the state's guaranty fund may be available to increase the effects of the insurer insolvency. - ANSWER ☑☑C. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. For an insurer to be considered solvent, states require it to have financial reserves A. Well in excess of its ordinary expenses. B. As a fraction of its ordinary expenses. C. Double its ordinary expenses. D. Equal to its ordinary expenses. - ANSWER ☑☑A. Well in excess of its ordinary expenses. Some communities in the USA celebrate holidays with firecrackers. Firecracker vendors erect stands in the parking lots of shopping centers before the holidays. One shopping center owner sponsoring a firecracker vendor's booth found that his insurance did not cover the exposure. He found that none of the insurers licensed to do business in the state sold insurance coverage for the exposures. How can the shopping center owner obtain appropriate coverage for the exposure from the firecracker vendor's booth?
A. By obtaining coverage through the excess and surplus lines market B. By pooling the risk with other shopping center owners with similar exposures C. From alien insurers in countries that also celebrate holidays with firecrackers D. Through a proportionate sharing arrangement with multiple insurers - ANSWER ☑☑A. By obtaining coverage through the excess and surplus lines market Which one of the following insurance customers might be compelled to meet its liability insurance needs through the excess and surplus lines market? A. Major airline requiring multi-billion dollar limits B. Plumbing outfit with one full-time and two part-time employees C. Hobby shop in a proprietor-owned building D. Landscaping company with two full-time and five seasonal workers - ANSWER ☑☑A. Major airline requiring multi-billion dollar limits Kyle is a professional athlete who has had several successful seasons. He earns $10 million a year, and is hopeful that his salary will double when he renegotiates his contract next year. His financial adviser recommends that he purchase an umbrella policy with multi-million dollar limits to provide an excess layer of protection above his primary personal insurance policies. Kyle's insurance broker has approached many of the large, well-known insurance companies, and they have balked at writing limits as high as those needed by Kyle. The broker is likely to find the coverage that Kyle needs in the Select one: A. Standard insurance market. B. Admitted property and casualty market. C. Surplus lines insurance market. D. Commercial property and casualty market. - ANSWER ☑☑C. Surplus lines insurance market. Most states regulate the excess and surplus lines market by Select one: A. Examining the market conduct practices of the unlicensed insurers.
